Coverage for damages resulting from faulty workmanship in the construction of an apartment complex was at issue in The Bartram, LLC v. Landmark Am. Ins. Co., 2012 U.S. Dist. LEXIS 44535 (N.D. Fla. March 30, 2012).
The owner of the apartments, Bartram, had primary coverage and three layers of excess coverage. Each contract excluded loss from faulty workmanship. The policies provided, however, "if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage."
Bartram contended water intrusion occurred because of faulty workmanship, which caused damage to the buildings' exterior and interior finishes, wood sheathing, framing, balcony systems, drywall ceilings and stucco walls. This damage was separate from the work needed to simply fix the faulty workmanship. Therefore, Bartram argued, the ensuing losses that resulted from the water intrusion was covered.
The insurer argued the ensuing loss exception was not applicable if the ensuing loss was directly related to the original excluded loss. Since the faulty workmanship naturally and foreseeably led to water intrusion without any new, independent cause, there was no ensuing loss. Therefore, coverage was barred by the faulty workmanship exclusion. The insurer cited cases finding no coverage for water damage resulting from faulty workmanship where the ensuing loss provision provided the faulty workmanship "exclusion does not apply to ensuing loss or damage caused by or resulting from a peril not otherwise excluded."
The policy exclusions here did not require reading a proximate cause element into the policy. Instead, if ensuing losses resulted from a covered cause, they were covered under the policy regardless of whether the loss was naturally set in motion by an excluded cause or loss. Therefore, if the faulty workmanship resulted in water intrusion that subsequently resulted in ensuing losses, the cost to repair the faulty workmanship was excluded, but the ensuing losses from the water intrusion were covered.